U.K. mobile operators lead FTSE lower

Private equity firms hover over Safeway

LONDON (CBS.MW) - U.K. mobile phone operator shares fell on Friday amid reports that Vodafone withdrew from bidding on the Dutch unit of a rival and that regulators would force them to slash prices on calls to rival networks.

The FTSE 100 index (1805550) closed 1.5 percent to 3,820.60. European markets were also lower, in particular technology shares. See European markets report.

It leaves Deutsche Telekom
DT, -1.08%
(555750) as the remaining bidder for the unit, which is estimated to be worth 100-300 billion euros.

Mobile phone operators were further hurt by a report saying U.K. regulators are expected to call for costs for mobile phone calls on rival networks to decline, starting with a 15 percent cut and further cuts over the next three years, the Financial Times reported on Friday.

"A lot were assuming that the pricing [discount] was 10-12 percent, the fact that it's now 15 percent and 14 percent thereafter will mean most analyses will have to be downgraded accordingly," said Peter Botham, a portfolio manager for Tilney Investment Management. The European Union in time will likely address the issue as well, he added.

Safeway (SFW) shares fell 0.7 percent to 305p per share, as Kohlberg Kravis Roberts confirmed it's made an approach to buy the U.K.'s fourth largest supermarket, and other buyout firms such as Texas Pacific Group, Cinven and CVC are preparing bids, the Financial Times said Friday. They would join Wm Morrison (MRW), which submitted the first bid for the chain last week, J Sainsbury (SBRY) and Wal-Mart Stores
WMT, +0.44%
as suitors.

Morrison gained 2.4 percent and Sainsbury jumped 3.1 percent.

The private equity firms are likely to break up and sell individual stores if they succeed in acquiring Safeway, although the board of Safeway is refusing to divulge financial information to these suitors, the report said.

Tilney's Botham said there's a strong chance a private equity firm will win the battle for Safeway, as they are likely to implement the same strategy by design that regulators will force on any of the bidding supermarkets-namely, selling off stores. "It strikes me as common sense, because the corporate raider will do the same thing," he said.

The winning bid is likely to be greater than 350p per share, Botham said. It may take until October or November for the Office of Fair Trading to work through the competition issues, he added.

Insurer bonus cut

Scottish Widows, the insurance subsidiary of Lloyds TSB
LYG, +5.10%,
said it is cutting its bonuses that it pays to policyholders from 4 percent to 2.5 percent. It follows the footsteps of Britannic Group (BRT) and Aviva (AV), which have cut or delayed the payments altogether. "The last three years have seen unprecedented sustained falls in stockmarket levels, which - together with lower interest rates - have affected the returns on most types of investment," Scottish Widows Chief Executive Mike Ross said in a statement. Lloyds shares fell 1.3 percent.

Analyst: Deutsche Boerse not likely to buy LSE

Shares of the London Stock Exchange (LSE) have been gaining and Deutsche Boerse (581005) declining this week amid renewed speculation Deutsche Boerse is mulling a takeover, a trend which continued on Friday, Deutsche Boerse dropped 1.2 percent, while LSE gained 3.2 percent.

The German stock exchange is not likely bid in the near-term for rival London Stock Exchange analysts at HSBC Trinkhaus & Burkhardt said on Friday. "We think the company will not present a bid short term, as currently other activities rank higher on its agenda. i.e. U.S. derivatives market entrance," HSBC said.

DB and LSE merger attempts to create the iX exchange fell apart in 2000 amid opposition from broker holders in London. "The only potential risk for the stock stemming from the rumor would be a lengthy bidding process with DB overpaying in the end," it said.

Kingfisher higher after selling German unit

Shares of British retailer Kingfisher (KGF) increased 0.5 percent after selling ProMarkt Group to its former owners Michael and Matthias Wegert for one euro. Kingfisher also contributed 55 million euros to the new owners and offered a loan facility of up to 32.5 million euros. ProMarkt owns 92 electrical stores in Germany and Austria and 93 photo labs. "This sale secures the immediate future of ProMarkt and its employees and minimizes the cash cost to Kingfisher of withdrawing from this loss making business," said Kingfisher's Chairman Francis Mackay in a statement.

Pharmacy chain Boots (BOOT) fell 1.1 percent as the U.K. Office of Fair Trade recommended removing restrictions on entry to the community pharmacy market on Friday. The OFT said regulations currently controlling entry to the industry should be lifted to allow any registered pharmacy with qualified staff to dispense prescriptions from the country's National Health Service.

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